Surety bond is a catch-all term for a three-party agreement in which one party (the Surety) guarantees or promises a secondary party (the Obligee) that a third party (the Principal) will successfully perform a specified duty or obligation. These types of bonds can be required by courts for certain cases or appeals; they can be required by law for companies to purchase (such as construction companies, brokers, and many others depending on your state); they can also be required when fiduciary agreements are created during a conservatorship, the formation or a trust, or in cases involving a personal representative or representative payee.
There are many types of bonds, each providing their own form of protection and assurance depending on the situation. If you’re new to the concept of surety bonds or surety as a contract in and of itself, this quick guide will help familiarize you with the major classifications of bonds and their uses.
Surety vs Insurance
Surety bonds are a type of insurance, but unlike normal insurance, it is not purchased by the person who the agreement is intended to protect. Instead, the bond is purchased by the principal (the party that needs the bond) in order to protect the obligee (the party that the bond protects). It guarantees that the principal will fulfill their obligations as outlined in the bond agreement. If the principal fails to do so, the surety (who provides the bond and the protection) compensates the obligee.
Insurance, on the other hand, is a contract between the policyholder and the insurer. The policyholder purchases the insurance from the insurer, who provides financial protection against specified risks or losses. In case of a covered event, the insurer pays out a claim to the policyholder to cover the losses incurred.
The Many Types of Surety Bonds
Surety bonds can be used for businesses, legal cases, and other situations, but there are three major classifications:
1. Court Bonds
These are bonds used for court cases that involve:
- Writs of attachment
- Temporary restraining orders
These types of bonds are required by courts in certain cases to secure the costs of any of the above situations, ensuring that losses are not incurred during a court proceeding. These types of bonds often need to be obtained before certain actions can be taken in court.
2. Appeal Bonds
Appeal bonds work similarly to court bonds but cover the following types of actions in court:
3. Fiduciary Bonds
Fiduciary agreements are used for estate planning purposes and in cases that involve probate. These bonds protect beneficiaries, heirs, and people who are subject to either guardianship or conservatorship. They can be used in situations that involve:
- Personal representatives
- Representative payees
- Power of attorney
Before any of the above can be established, the courts will likely require a surety bond that provides protection against financial losses or mismanagement of funds.
Which Type of Surety Bond Do You Need?
Whether you’re an attorney who needs a bond for their case or a person simply trying to obtain protection for your assets or those of someone you love, the surety experts at The Patrick J. Thomas Agency are here to help. We specialize in dozens of types of surety bonds and can help you navigate the process of obtaining a bond from a highly rated surety.
Get in touch with us to tell us about your circumstances and the bond you need.
Disclaimer: this is for informational purposes only and is not intended to be legal advice. If you need legal counsel, please contact an attorney directly.